2009 interim results - investis digital · 7 2009 interim results new customer assist programme...

2009 Interim Results1

2009InterimResults


Index

Section PageBusiness review:

Business priorities 4Review of banking business 5Review of life business 9Strategic agenda 14

Financial Review:Group earnings 17Funding 21Loan impairments 23Capital 30Outlook 32

Additional information 33

A number of statements we make in our presentation will not be based on historical fact, but will be “forward-looking” statements within the meaning of the US Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those projected in the forward looking statements. Forward-looking statements made in this presentation relate only to events as of the date on which they are made.


Business Review

Kevin MurphyGroup Chief Executive

Priorities 2009

Strategic agenda

Outlook


Business as usual - Priorities 2009

Arrears & impairments

Funding & margins

Bank

Customer retention

New investment products

Life

Maximise inflowsBank depositsLife sales

Cut costs

Group


Bank Deposits - Growing Resource Base

Retail deposits growth ahead of target

Total new inflows of €1.1bn in H1 09

Projected full year inflows of €2bn

Customer acquisition

21,000 new current accounts opened in H1 09

Projected full year - 40,000 new current accounts

300,000 new current accounts opened in last 5 years

Commercial deposits

Loss of overseas corporate deposits in Q1

Increase in Irish commercial and interbank deposits


Bank Lending - Stable / Low Risk Book

Gross new lending €0.7bn

Remain closed for new business in UK

Continued slowdown in redemptions

No corporate / SME / development lending exposure

ROI residential mortgages

UK residential mortgages

ROI commercial Mortgages

Consumer Finance

Mix%69

20

6

5

Growth%

(1)

10*

1

(13)

Total Loan Book €40.1bn (Dec 2008: €39.9bn)

Loan Balances

* Sterling balance down 1%


New Customer Assist programme

● Offering a wide range of solutions to customers in repayment difficulties

e.g., moratoria, interest only, extension of term etc.

● Significant re-deployment of personnel

● Extended operating hours - weekend / evening focus

Full year outlook - some positive signals

● UK - arrears looked to have peaked, with cases down 15% at June 2009. Continued improvement expected in H2

● Ireland - rate of increase in arrears is slowing down

Bank Arrears - Active Management


Actively managing net interest income margins

● Increasing margin on variable rate lending product (0.5% from August 2009)

● Reducing the price paid for new deposits whilst remaining competitive

Funding the Balance Sheet in the most cost-effective manner

● Actively using ECB funding facility

● €3bn of long term funding raised year to date

Bank Asset / Liability Management


Life & Pension Sales - Competing strongly in a difficult environment

* Irish Life International

0 50 100 150

Total Retail Life -52% - collapse in consumer demand

Corporate Business -34% -impacted by increase in unemployment and public sector levy

Pensions strength - market share c. 34%

Protection - developing new products / channels to offset mortgage fall

Bancassurance - optimistic of recovery in H2 (ptsb & RBS)

Corporate

• Pension

• Protection

ILI*

• Investment & Savings

Retail

Total sales €167m (H1 08: €294m)

€m

-34%

-52%

-50%

-68%

H1 09 H1 08

-27%


Investment Management - sustained inflows continue

ILIM Funds under Management

* Excludes ILI

0

5

10

15

20

25

30

35

40

2004 2005 2006 2007 2008 H1 09

Institutional Life Company

21

25

3134

€bn

27ILIM continues to grow its leadership position in Ireland

Projected in-flows of €1.5bn in 2009

(-26% on 2008)

Total in-flows of €10bn over last 5 years

Strong client base

Strong relative performance

27


Negative persistency for 2009/2010

● Significant changes in customer behaviour

● Dash to cash

● Inability to continue paying premiums

Significant Retention programme underway

● Range of retention actions being implemented

● Significant improvement since Q1

● Growing confidence improvement can be sustained

Life Business retention - coping with changes in customer behaviour


Customer needs have changed

● Appetite for down-side risk diminished

● Need for greater predictability of returns

● Some level of guarantee important

Gearing up to meet these needs

● Continuing to develop guaranteed products

● Increasing emphasis on life-style offerings

Life Investment Solutions - new productsaimed at changed customer needs


Headcount - reduced by c. 12%

● Total reduction of over 550 FTE

c.330 FTE Bank / c.220 FTE Life

● Non-replacement / incentivised career breaks / flexible working / limited VS

Payroll costs

● Remuneration freeze

● No bonuses for senior staff

● No profit share

Overheads - root and branch review

● Suspend discretionary spends

● Minimal capital spend

● Contract renegotiations

Further cost savings in 2010

Group Costs - driving for €50m reduction in underlying costs


Group re-structure (Project Trinity) progressing well

● Due diligence underway

● EGM expected in Q4

Strategic options remain fluid

● Many different permutations still possible

● NAMA is catalyst

Continued Government support is welcome

● Long-term guarantee for funding in October

Strategic Agenda - Making steady progress


IL&P’s lower risk & diversified life and banking

businesses leave it well placed to deal with current

challenges & prosper with economic recovery

Summary


Financial Review

David McCarthyGroup Finance Director

Earnings

Funding

Loan impairments

Capital


Operating profit / (loss)

Life Embedded Value:

• Investment fluctuations

• Economic assumptions

Profit / (loss) before tax

Taxation / Minority

Profit / (loss) after tax

H1 09

€m

(51)

(80)

(89)

(220)

29

(191)

Group Earnings

Change

%

(117)

H1 08

€m

300

(230)

(8)

62

(27)

35

Operating loss due to:

Losses in bank from impairments and higher funding costs

Lower sales and negative persistency in life business

Life embedded value reduced by:

Falls in property values

Higher interest rates resulting in an increase in the risk discount rate to 8.2% (Dec 08: 7.0%)


Operating Earnings

Lower new business profits and poor persistency account for reduction in life earnings

Increased loan impairment provisioning and reduced margins give rise to losses in bank

General Insurance Associate results reflects underwriting loss offset by improved investment return

Group Income

Statement*


• Life

• Banking

• Associate

• Other


Taxation


H1 09

€m

84

(132)

4

(7)

(51)

7

(44)

Change

%

(52)

(206)

(117)

H1 08

€m

175

124

2

(1)

300

(36)

264

* Embedded value basis


Operating Profit - Life

Life Income

Statement

New business

In-force business

• Total expected return

• Experience variances

• Assumption changes


Taxation


H1 09

€m

23

61

61

(21)

21

84

(9)

75

Change

%

(65)

(52)

(52)

H1 08

€m

65

110

82

7

21

175

(18)

157

Lower new business contribution due to lower sales and margins

Life (excl. ILIM) new business margins:

APE: 10.5% (Dec 08: 15.1%)

PVNBP: 1.6% (Dec 08: 2.4%)

In-force earnings impacted by negative persistency experience of €34m

Continued expense reductions and improvements in operational efficiency give positive assumption change of €21m


Operating Profit - Bank

Revenue

● NII lower due to higher funding costs, reduced liability spreads

● Gain on disposal of gilt portfolio in H1 2008

Outgo

● Costs - excluding exceptional items -down c. 10%

● Loan impairment provisions increased reflecting increase in arrears & falling property values

Bank Income

Statement

Net interest income

Other income

Government guarantee

Trading income

Gilt gains

Expenses

Impairment provisions


Taxation


H1 09

€m

195

24

(11)

(6)

-

202

(145)

(189)

(132)

15

(117)

Change

%

(19)

(206)

H1 08

€m

240

20

-

5

29

294

(155)

(15)

124

(18)

106


Bank Funding Mix

ROI deposits

Strong growth

Very competitive market

Loss of overseas deposits in Q1 replaced by Irish retail, commercial, interbank deposits & term funding

ECB funding €12bn at June 09

Raised €3bn term debt year to date

Extension of Government guarantee scheme expected to be finalised in October

NAMA to be positive for sector liquidity

June 2009 - Total €45bn

Corporate Deposits9%

Term debt30%

Short-term debt14%

ECB27%

Retail Deposits20%


Bank Funding / Asset Mix & NI Margin

Cost of Funds

Customer accounts

Long-term

ECB

Short term

Cost

%

1.9

1.8

1.0

1.3

1.5

Book

%

29

30

27

14

100

Asset Yields

ROI mortgages

UK Mortgages

Comm. Mortgages

Consumer Finance

Treasury

Yield

%

2.2

2.3

2.8

4.0

2.2

2.4

Book

%

59

17

6

5

13

100

Margin movement in H1 2009:

BPS2008 Margin 105Funding costs (14)Liability margins (16)Asset margins 11Other 1Closing June 2009 87

Liability margin reflects effect of reduced base rates on deposit floors

Asset margin includes DAC and impact of fixed rate mortgage switches

Book yield of c. 2.4% versus average cost of funds of c. 1.5% giving net margin currently of c. 90 bps


Arrears & Impairments

Arrears trends

Impairment provisioning

Impairment model


UK Buy-to-Let Mortgage 3+ month Arrears Cases*

BTL accounts for 93% of CHL portfolio

Closed to new business in early 2008

Industry average 3+ month cases in arrears 3.76% at Jun 09 v CHL of 2.86%

CHL consistently below industry average

Arrears 3+ month cases peaked in Q1 2009 at 1,608 cases

Average indexed LTV of BTL book 89% at June 2009

Negative equity 34% of total cases in June 2009

UK Mortgage Arrears

* Source: Council of Mortgage Lenders

>3 months, includes repossessions & receivers of rent cases

450490

547627

727

849

727 760 758

653

371410 385 425

427 451496

594691

863

1083

1,338

15321608

15371460

1362 1322

0

200

400

600

800

1000

1200

1400

1600

1800

Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09

Acc

ount

s in

Arrea

rs

Accounts >1 and ≤3 months

Accounts >3 months (incl. LPA Receivers & Repo's)

0.69% 0.72% 0.76% 0.78%0.93%

1.16%

1.41%

2.03%

3.33%

4.20%

3.76%

0.37% 0.32% 0.36% 0.34% 0.40%0.53%

0.77%

1.15%

2.15%

3.27%

2.86%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

Q4 '06 Q1 '07 Q2 '07 Q3 '07 Q4 '07 Q1 '08 Q2 '08 Q3 '08 Q4 '08 Q1 '09 Q2 '09

CML >3months, All Receivers & All Repo's (BTL Only)

CHL >3months,All Receivers, All Repo's (BTL)

CHL Mortgage Arrears Cases


3,4743,778 3,801

4,0494,221

4,6094,777 4,862

1,9332,188 2,250

2,825 2,806 2,7632,472 2,390

1000

2000

3000

4000

5000

6000

Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09

Accounts >90 days

Accounts >30<90 days

Car Finance Arrears

Book declining due to weak new car sales

Monthly arrears cases beginning to moderate

Signs of pick-up in 2nd hand car prices

Car Finance Arrears Cases


ROI Residential Mortgage Arrears

Significant increase in arrears cases in H1 2009

Irish mortgage cases > 90 days in arrears 6,122 at June 2009 out of total portfolio of c. 188,000 cases

Monthly increase beginning to moderate

Average indexed LTV of 49% at June 2009

Negative equity 12% of total cases at June 2009

3,779

4,2344,608

5,0035,376

5,7896,122

6,567

2,600 2,726 2,761 2,868 2,975 3,008 3,082

2,580

2000

3000

4000

5000

6000

7000

8000

Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09

Accounts >90 days

Accounts >30<90 days

Irish Residential Mortgage Arrears Cases


Residential mortgages

• ROI

• UK

Commercial mortgages

Consumer finance

Provisions*

Balances

€m

227

75

67

73

442

316

Total Loans

%

0.8

0.9

2.8

3.5

1.1

June 2009 December 2008

Impaired Loans

Balances

€m

51

74

16

61

202

139

Total Loans

%

0.2

1.0

0.7

2.6

0.5

Impaired loans: are loans where there is objective evidence that an impairment loss had occurred, including cash-flow difficulties,

overdue contractual payments and breach of loan covenants

* Excludes provision for Iceland & Lehman senior debt


Impairment Charge

ROI mortgages

UK mortgages

ROI commercial

Consumer finance

• ptsb Finance

• Term, Visa, overdraft

Specific

€m

49

8

24

0

0

81

Collective

€m

49

9

6

28

16

108

Total

€m

98

17

30

28

16

189

Total

€m

27

15

9

21

10

82

H1 09 FY 2008


Loan Impairments Model - 2009-2011

Model methodology reviewed & updated by Oliver Wyman

Assumptions updated

Unemployment peak 16% (previous assumption 14%)

House prices -40%

PD & LGD experience

Based on UK 1990s experience

Revised to reflect actual experience in Ireland to date

Foreclosure costs: 22%

Impairments estimate for 2009-2011: 170-180 bps (previously 160 bps)

Regulatory capital includes provisions for expected losses ahead of accounts provisions


Basel II

Tier 1 capital

Total RWAs pre-ICR

Total RWAs after ICR

Core Tier 1 ratio

• Pre ICR

• After ICR

Capital - Bank

Dec 08

€m

2,059

18,173

22,353

%

11.3

9.2

Jun 09

€m

2,006

17,576

21,619

%

11.4

9.3

Basel II implementation

Pillar 1 in operation

Pillar 2 / ICAAP outstanding

Interim capital requirement (ICR) add-on of 23% in lieu

Basel II minimum total capital requirement of 8%

Surplus capital of €600m before ICAAP / ICR add-on

Strong capital position to absorb expected defaults


Regulatory capital Jan 2009

Capital from existing business

New business strain

Expected investment return

Short-term investment fluctuations

Economic assumption changes

Other

Regulatory capital 30 Jun 2009

Capital - Life

Minimum solvency requirement for Irish Life Assurance of €413m (Dec 08: €410m) covered 1.6 timesShort term investment fluctuations* made up of:

€mUnit-linked management fees (25)Property (30)Options / guarantees (8)Other (6)

(69)Reflected inNet worth (52)Value of in-force (17)

(69)

€m

694

89

(39)

5

(52)

(7)

(3)

687

* Net of tax credit of €11m


Outlook

Life

Bank

Group


Page34. Group total profit after tax - EV basis35. Group operating profit after tax - EV basis36. Group operating EPS - EV basis37. Group IFRS (Statutory) profit after tax38. Group IFRS and EV basis results reconciliation39. Bank new lending & LTVs40. Bank non-interest income41. Bank asset portfolio42. Bank non-performing loans43. Bank regulatory capital44. Life embedded value movement45. Life asset quality46. Life new business margin47. Life variances & assumptions48. Life operating costs49. Life & investment sales50. Life sales - Retail & Corporate51. Other activities operating profit

Additional Information

33



Investment fluctuations

Economic assumptions

Other changes

Minority

Total profit / (loss)

Pre-tax

€m

(51)

(80)

(89)

-

(220)

0

(220)

H1 09

Tax

€m

7

11

11

-

29

-

29

H1 08

Post-tax

€m

264

(238)

(3)

14

37

(2)

35

Post-tax

€m

(44)

(69)

(78)

-

(191)

0

(191)

Total Profit After Tax

34


Life assurance

Banking

Associate

Other


Pre-tax

€m

84

(132)

(48)

4

(7)

(51)

H1 09

Tax

€m

(9)

15

6

-

1

7

H1 08

Post-tax

€m

157

106

263

2

(1)

264

Post-tax

€m

75

(117)

(42)

4

(6)

(44)

Operating Profit After Tax

35


Note: “own shares” included for EPS calculation


Taxation


Average no. of shares

EPS

H1 08

€m

300

(36)

264

276m

96c

H1 09

€m

(51)

7

(44)

276m

(16)c

Change

%

(117)

(117)

Operating EPS

36


Life assurance & investment

Banking

General Insurance

Other


Economic variance

Other

Taxation

Profit / (loss) after Tax

H1 08

€m

143

124

1

0

268

(40)

(6)

-

(12)

210

H1 09

€m

65

(132)

4

(7)

(70)

(53)

(61)

(24)

(7)

(215)

65

IFRS Life Earnings Movement H1 2009€m

New business effect (3)Interest on insurance VIF 29Expected surplus on Inv. contracts 28Exp var. & assumption changes 5Expected Investment Return 6

IFRS (Statutory) Profit After Tax

37


Embedded Value basis

Investment business

• Value of in-force

• Deferred costs & fees

• Restatement of liabilities

Own shares adjustment

Other

IFRS (Statutory) basis

S’Holders

Equity

€m

2,601

(603)

135

76

-

(59)

2,150

Total Profit / (loss)*

after Tax

€m

(191)

3

(4)

2

(18)

(7)

(215)

H1 09

* Before minority interest

IFRS / EV Reconciliation

38


Bank New Lending

0

0.5

1

1.5

2

2.5

3

ROIresidentialmortgages

UKresidentialmortgages

ROIcommercialmortgages

Consumerfinance

€bn

0.2

1.4

0.5

Total new lending €0.7bn (H1 08: €5.1bn)

H1 09 H1 08

Irish Residential New Lending LTVs

Home LoansFirst Time BuyersSecond Time BuyersAverage

BTL Average

Equity Release Average

Total New Lending*

2008%785664

66

52

63

H1 09%755162

63

51

57

Total new lending down 86% on H1 08

UK residential & ROI commercial lending closed to new business

Average indexed LTV of 49% at Jun 09

Falling new lending LTVs

FTB LTV down from 78% to 75%

2.7

0.8

0.3

2007%845769

67

54

65


Note: Bancassurance Embedded Value operating profit €6m [H1 08: €26m] included in life assurance

Fees & Comms (rec’d)

Fees & Comms (payable)

Government guarantee

Trading income

Gilt portfolio

H1 08

€m

25

(5)

20

-

5

29

54

H1 09

€m

27

(3)

24

(11)

(6)

-

7

Bank Non-Interest Income

40


Category

Sovereign Bonds

AAA

AA

A

Bank FRNs / Corporate Bonds

AA

A

BAA

C & lower*

RMBS

AAA

AA / A

Bank Asset Portfolio

Total bank asset portfolio of €4.4bn

The portfolio is made up of €1.5bn Sovereign Bonds (34%), €2.2bn Bank FRNs (50%) and €0.7bn Prime RMBS (16%)

93% of the Prime RMBS is EURO denominated and there is zero US exposure in balance

€bn

0.1

1.3

0.1

1.0

0.9

0.2

0.1

0.6

0.1

Asset Portfolio June 2009

* Icelandic & Lehman holding, these have been provided for fully

%

7

87

6

45

41

9

5

97

3


Residential mortgages

• ROI

• UK

Commercial mortgages

Consumer finance

Balances

€m

1,165

297

216

124

1,802

Total Loans

%

4.2

3.8

8.9

6.0

4.5

June 2009 December 2008

Non Performing Loans

Balances

€m

605

255

147

89

1,096

Total Loans

%

2.2

3.6

6.2

3.7

2.8

Non-performing loans: are loans where repayments are over 90 days in arrears and impaired loans


Basel II Capital

Available capital

Tier 1

Tier 2

Total capital

Deductions*

Total available capital (Tier 1)

Pillar 1

Interim capital requirement (ICR)

Total required capital

Excess own funds

Total RWAs (excl. ICR)

RAR (all Core Tier 1)

• Incl. ICR• Excl. ICR

Bank Capital - Basel II

Dec 08

€bn

4.2

1.3

5.5

(3.4)

2.1

1.5

0.3

1.8

0.3

18.2

%

9.211.3

Jun 09

€bn

4.0

1.3

5.3

(3.3)

2.0

1.4

0.3

1.7

0.3

17.6

%

9.311.4

* Life company investment and other regulatory adjustments

Basel II implementation

Pillar 1 in operation

Pillar 2 outstanding

Interim capital requirement (ICR) add-on of 23%

Basel II minimum total capital requirement of 8%


Opening 1 Jan 2009

Operating profit


Economic assumptions

Capital & other movements

Closing 30 Jun 2009

Net Worth

€m

569

55

(52)

(7)

(3)

562

VIF

€m

1,080

20

(17)

(71)

-

1,012

Required Capital

€m

626

629

Total

€m

1,649

75

(69)

(78)

(3)

1,574

Life Embedded Value Movement

44

* All movements net of tax


Life Asset Quality

Rating

AAA

AA

A

€m

1,330

196

14

1,540

%

86

13

1

Non-linked Debt Securities Non-linked liabilities matched with debt securities of appropriate duration

Majority high quality sovereign bonds

No exposure to “toxic” assets

Insurance & investment assets

Deposits

Property

Equity

Debt securities / other

Subordinated debt*

€m

406

157

9

201

773

(211)

562

%

53

20

1

26

Shareholders’ Net WorthProperty - predominantly owner occupied plus seed capital for property funds

Subordinated debt - €200m capital raised in Q1 2007

* €200m net of mark-to-market adjustments


New Business Contribution

Life

ILIM

Margin - APE

Life

ILIM

Margin - PVNBP

Life

ILIM

H1 08

€m

53

12

18.0

11.3

%

2.9

1.1

H1 09

€m

18

5

10.5

8.8

%

1.6

0.9

Life New Business Margin

46

APE SalesH1 09 H1 08

€m €m

Life 167 294

ILIM 60 103

PVNBP SalesH1 09 H1 08

€m €m

Life 1,090 1,838

ILIM 605 1,033


Experience Variances Assumption Changes

H1 08

€m

0

0

21

21

H1 09

€m

0

0

21

21

Persistency

Risk

Expenses / Other

H1 08

€m

(9)

11

5

7

H1 09

€m

(34)

6

7

(21)

Life Variances & Assumptions

47


Life Operating Costs

Retail & Corporate

ILIM

Other

Pension IAS 19 adjust.

H1 09

€m

80

5

4

89

4

93

H1 08

€m

96

9

7

111

(2)

109

Change

%

(17)

(20)

(15)


Recurring Premium Single Premium

2006 Interim Results

H1 08

€m

450

280

1,033

163

1,926

192

1,926

H1 09

€m

257

219

605

79

1,160

116

1,160

Retail

Corporate

ILIM

ILI

Total

APE Basis

PVNBP Basis

H1 08

€m

96

109

-

-

205

205

945

H1 09

€m

42

69

-

-

111

111

535

Life & Investment Sales

49


Products

Pension

Investments

Protection / Risk

Savings

Distribution

Bancassurance

Direct Sales force

Brokers / IFAs

Institutions

H1 08

€m

67

27

30

17

141

36

41

43

21

141

H1 09

€m

32

10

22

4

68

12

20

28

8

68

Change

%

(52)

(63)

(27)

(76)

(52)

(67)

(51)

(35)

(62)

(52)

Retail & Corporate Life Sales

50

Products

DC pension

Protection / Risk

Annuities / Other

Distribution

Consultant

Brokers

Direct / Cornmarket

H1 08

€m

89

27

21

137

49

28

60

137

H1 09

€m

55

17

19

91

35

25

31

91

Change

%

(38)

(37)

(10)

(34)

(29)

(11)

(48)

(34)

Retail APE Sales Corporate APE Sales


Cornmarket / IPSI

Corporate costs

H1 08

€m

11

(12)

(1)

H1 09

€m

4

(11)

(7)

Other Activities Operating Profit

51


Please contact our Investor Relations Department for any furtherinformation or visit our group website at

www.irishlifepermanent.ie

Contact details:

Barry Walsh [email protected] +353 1 704 2678

Orla Brannigan [email protected] +353 1 704 1345

Contact Information

52

http://www.irishlifepermanent.ie/

mailto:[email protected]

mailto:[email protected]

2009 interim results - investis digital · 7 2009 interim results new customer assist programme...

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